WASHINGTON -- The Securities and Exchange Commission's civil fraud suit against Goldman Sachs that shook Wall Street stands in sharp contrast to the agency's many blunders in failing to stop the $50 billion Ponzi scheme of Bernard Madoff.

The complaint filed against Goldman Friday contained a meticulous narrative of a highly complex deal, but also included the crowing emails of a young Goldman executive who allegedly allowed a hedge fund client to stack the package with risky home mortgages. The hedge fund, Paulson & Co., secretly reaped a $1 billion profit by betting against the deal at the expense of other investors, the suit said.

Even the agency's news release announcing the Goldman suit was infused with "a condemnatory tone that we have not seen coming out of the SEC for almost a decade," since the end of the Clinton administration, said James Cox, a Duke University law professor who specializes in securities.

"The release is very judgmental about the conduct, almost scolding ... and those releases get done at the highest level," he said.

The message: The SEC is back on the job.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

WASHINGTON -- In the painful months following Wall Street's flirt with financial ruin, no big player has yet been punished. Robert Khuzami's reputation now rests on Goldman Sachs becoming the first.

The enforcement chief at the Securities and Exchange Commission has spent his first year remaking his office, which was chock full of top managers, but light on investigators.

When Khuzami arrived last year, he inherited a demoralized agency, widely ridiculed as the most ineffectual of federal regulators. Faced with salary restrictions, the agency had promoted top-level people to administrative positions at a pace that left the agency top heavy and without enough cops on the beat.

Khuzami set out to change that, leaving top salaries in place but forcing those administrators out of desk jobs and back into investigations.

His office has prosecuted private equity firms for alleged pay-to-play activity in the state of New York, and late last year brought a high-profile insider trading case against Galleon Management, a large hedge fund that invests on behalf of the ultra wealthy.

But that pales next to what is ahead for the SEC in taking on Wall Street's most influential and politically connected player.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

The frayed mood between the bank and the regulators might explain the SEC's decision to file civil charges against Goldman on Friday without warning the bank, as well as the two sides' lack of settlement talks before last week's move.

In a 40-page document written in September last year in response to the SEC's initial accusations, Goldman and Sullivan & Cromwell, its lawyers, say the authorities' case is riddled with "fatal deficiencies" and criticises the regulators for laying blame with the benefit of "perfect hindsight"...."There is no basis in the law, the record or common sense for such charges," it says.

In a separate document, sent to the SEC a few days later, Goldman refers to "open and robust" discussions with staff of the commission - a glimpse of the tough behind-the-scene talks that went on from July last year when the regulators formally informed the bank they wanted to press charges.

The Financial Services Authority is closely monitoring developments at Goldman Sachs after one of its London-based traders was implicated by US authorities in a $1bn fraud case that hit Royal Bank of Scotland.

The link gives a domestic dimension to the lawsuit filed by the US Securities and Exchange Commission against Goldman Sachs. The case is the biggest sign yet that regulators on both sides of the Atlantic intend to pursue the architects of the exotic financial instruments that helped to cause the credit crunch. It is alleged that the American bank defrauded investors by encouraging firms to take bets on sub-prime mortgages it knew would turn sour.

The Liberal Democrat Treasury spokesman, Lord Oakeshott, said if the claims proved true it would demonstrate "the extent greedy bankers would go to, to pull the wool over the eyes of their customers and the regulator".

The accusations are levelled at Goldman Sachs, as well as French employee Fabrice Tourre, 31, who is now an executive director in its London office.

The US financial watchdog obtained emails sent to a friend in which Tourre jokes: "The whole building is about to collapse... only potential survivor, the fabulous Fab [Fabrice Tourre]... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

Royal Bank of Scotland (RBS.L) was forced to reveal yesterday that it has lent $3.47bn (£2.34bn) to Lyondell Chemical, the bankrupt US chemicals company. Analysts warned that RBS, the biggest lender to Lyondell, was at risk of losing a sizeable proportion of the money.

RBS inherited the loans from its ill-fated acquisition in 2007 of ABN Amro's investment bank. The loans are thought to include $1.6bn worth of lower-ranked credit that could lose all of its value. ABN Amro is listed as Lyondell's biggest secured creditor in documents filed in the US bankruptcy court in New York.

The potential loss is the latest banana skin for RBS linked to the £10bn ABN Amro deal. RBS's pursuit of the Dutch bank during the financial meltdown helped to seal the fate of Sir Fred Goodwin, who quit as chief executive late last year. Last month, RBS revealed it could lose £400m from Bernard Madoff's alleged $50bn fraud in the US because of deals done by ABN.

"Of course I feel let down by RBS," Mr Hamilton said, before adding: "Is there a person in the whole of Scotland who doesn't feel let down by RBS? We have trusted them for generations. I've been a customer, I'm sure, for 60 years."

There was at least one call on Mr Hamilton's website yesterday for a "class action" against RBS with other aggrieved customers joining him in a major action against the bank. Politicians admitted Mr Hamilton's claim could have "enormous implications", and may pave the way for "a speedy nationalisation".

SNP MSP Alex Neil said: "I think the bank will be nationalised anyway, but Ian is making a substantial and justified point that there are responsibilities the banks have to accept in terms of their actions and in terms of their customers."

"Cherie Blair, the wife of former British Prime Minsiter Tony Blair, has been hired to sue the Royal Bank of Scotland. Two UK pension funds have asked the US courts to compensate them for the losses they incurred when the bank 'falsely reassured' investors the bank was in good health when it was 'effectively insolvent'." scrapbook

"Neil Moorhouse, a spokesman for RBS, said he was "unaware of the case" and couldn't provide further comment. "Bloomberg

I can't really say I feel bad for the shareholders, especially not big ones like these pension funds. Big owners usually have their own people as members of the board to keep an eye on things, and even if they don't someone should have told them that share ownership carries with it the risk of losses. Past performance is no guarantee of future performance. If you buy shares in a company run by crooks, well, tough luck. Take a closer look at management next time.

Ergo, they just seem like sore losers.

If anyone should be going to court, it's the management for RBS for providing false information to the markets. Long jail terms for them is fine by me, but stupid shareholders should not be compensated. If they don't like risk they should put their money in German sovereign debt.

There are stupid shareholders and there are stupid shareholders. Over the past 2 years I've read of some pretty awful crimes perpetrated by fiduciaries e.g. real estate agents, and other money managers, engaged by clubs, pension funds, municipalities. Some have been convicted --mostly the ponzis-- but I guess, stupid shareholders are given to understand the test of harms through civil litigation is more easily satisfied than those proscribed by criminal prosecution.

Which is a pity. Civil penalty cannot stop such people. Limited liability such as it is, the entity that harbors the gumbas may bankrupt. But they prevail, hang a new, teflon shingle burnished with self-evident chutzpah, and draw the other "outguessing" shareholders that got away.

I'm not convinced as yet any prime dealer employee will ever face prison, although in the US, states' attorneys general may arrest and charge individuals at any time. DoJ doesn't require SEC permission to prosecute.

The SEC's suit against Goldman is the agency's biggest assault on a Wall Street firm in a matter stemming from the credit crisis. A successful outcome for the SEC could go a long way in repairing its reputation, which was damaged by its failure to discover Bernard Madoff's Ponzi scheme and other shortcomings that emerged during the crisis.

The SEC's case against Goldman and a vice president at the firm, Fabrice Tourre, hangs on a single critical contention. The SEC says Goldman sold investors a product linked to the performance of certain mortgages without telling them that a hedge fund betting on the mortgages' demise helped design the product.

Several lawyers not involved in the case said the evidence, as laid out in the SEC's complaint, is deep enough to support the civil fraud charges. "From the complaint, it looks pretty strong," said Jill Fisch, a law professor at the University of Pennsylvania. "It's a test case in terms of the SEC going forward both for whether they're successful and, if they settle, will it be a meaningful penalty," she said.

The SEC has the tricky job of showing that Goldman was reckless in deceiving investors about the hedge fund's role, said Peter Huang, a securities law professor at Temple University. "If you were buying something, you should care about the fact that the person who was picking the things you were buying was actually betting against them," he said. "That's the part that wasn't disclosed.

[Murdoch Alert]

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency....Separately, in a letter to Jean-Claude-Trichet, president of the European Central Bank, Mr Geithner called for co-operation between the US and Europe in deciding which contracts should be forced through central clearing houses and on to electronic exchanges.

The letter, seen by the Financial Times, was sent on Friday and describes a regulatory reform tougher than some Democratic and Republican proposals: "All standard derivative contracts must be traded transparently" on exchanges or other platforms, Mr Geithner wrote, "lowering costs for users of derivatives, such as industrial or agriculture companies".

Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

April 17 (Bloomberg) -- Merrill Lynch & Co. engaged in the same investor fraud that the U.S. Securities and Exchange Commission accused Goldman Sachs Group Inc. of committing, according to a bank that sued the firm in New York last year.

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, known as Rabobank, claims Merrill, now a unit of Bank of America Corp., failed to tell it a key fact in advising on a synthetic collateralized debt obligation. Omitted was Merrill's relationship with another client betting against the investment, which resulted in a loss of $45 million, Rabobank claims.

Merrill's handling of the CDO, a security tied to the performance of subprime residential mortgage-backed securities, mirrors Goldman Sachs conduct that the SEC details in the civil complaint the agency filed yesterday. It claimed Goldman omitted the same key fact about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter.

"This is the tip of the iceberg in regard to Goldman Sachs and certain other banks who were stacking the deck against CDO investors," said Jon Pickhardt, an attorney with Quinn Emanuel Urquhart Oliver & Hedges, who is representing Netherlands-based Rabobank.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

The Securities and Exchange Commission, after having hit Goldman Sachs Group Inc. with a civil fraud charge, is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors.

The SEC's case against Goldman Friday has exposed an open secret on Wall Street: As the housing market began to wobble a few years back, some big financial firms designed products aimed at allowing key clients, such as hedge funds, to bet on a sharp housing downturn.

Among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp. It isn't known what deals the SEC is investigating.

Here is a list of the banks that were involved [9] in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar's role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman's 25 Abacus CDOs--one of which is the basis of the SEC's lawsuit--amounted to $10.9 billion [10].

April 18 (Bloomberg) -- Former President Bill Clinton said he should have pushed for regulation of financial derivatives when he was president, rejecting the advice of top economic advisers Robert Rubin and Larry Summers.

The argument was that derivatives didn't need transparency because they were "expensive and sophisticated and only a handful of people would buy them," Clinton said on ABC's "This Week" program. "The flaw in this argument was that first of all, sometimes people with a lot of money make stupid decisions and make it without transparency."

"Even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect 100 percent of the investments," Clinton said. The show was taped yesterday for broadcast today.

Tighter regulation of derivatives trading is part of a package of financial reforms being pushed by the Obama administration against Republican opposition. The Senate is debating a bill introduced by Banking Committee Chairman Christopher Dodd that would also give the federal government the authority to unravel institutions whose failure threatens the financial system.

Bush Blamed

Clinton also said the Bush administration contributed to the financial crisis with lax regulation.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

Clinton, "There was already a total merger practically of commercial and investment banking, and really the main thing that the Glass-Steagall Act did was to give us some power to regulate it - the repeal."

*UPDATE: After the show Sunday, Clinton Counselor Doug Band wrote me to say that "during the interview, reflecting on a derivatives debate that occurred twelve years ago, President Clinton inadvertently conflated an analysis he received on a specific derivatives proposal with then-Federal Reserve Chairman Alan Greenspan's arguments against any regulation of derivatives."

Band wrote that President Clinton "still wishes, as he has said several times, that he had pursued legislation to provide additional regulatory authority in this area, even though the Republican majority in Congress would have blocked such an effort. And he remains convinced that he received excellent advice on the economy and the financial system from his economic team, led by treasury Secretaries Bentsen, Rubin and Summers; that Chairman Greenspan served the nation well during those 8 years; and that SEC Chairman Arthur Levitt, and others in regulatory positions fulfilled their responsibilities in a manner that supported remarkable growth without improvident risk."

I don't think it's a case of blackmail. truman used to have a sign on his desk, "The Buck stops here". Clinton signed off on the legislation and the lack of regulation.

So now it's all blown up, he's kinda doing a Bart Simpson, as if to say "I didn't understand what I was doing, it was those guys over there".

No Bill. It was the guy holding the pen in the Oval office. Nobody expects you to understand this stuff, but you are expected to have better advice by hiring more widely. If all the guys in the room agree with each other, your hiring policy was wrong. That's your fault Bill.

What's instructive is that he is forced to acknowledge that failure to regulate was a MISTAKE. This is of course a sea change from only two years ago. Taking actual responsibility? hah, yeah right! The best we could hope for was to have them back pedal as we are now seeing.

The former head of the ill-fated portfolio selection agent (and CDO buyer) ACA is married to (or at least co-habitating with) Goldman's Deputy General Counsel: Alan S. Rosenman took over ACA Capital as president and CEO in 2004 - because -- wait for it -- his predecessor Michael Satz had "personal income tax issues" -- (how murky is this story going to get you must be asking?)

According to a Business Week article dated April 3 by David Henry and Matthew Goldstein, Rosenman "immediately began to push ACA into CDO insurance, an area his predecessor, Satz, had only begun to explore." Rosenman's wife, or at least partner -- they are listed as sharing a house together for which they paid $6.1 million in 2005 in New York -- is Frances "Fran" R. Bermazohn, who is managing director and deputy general counsel at ... Goldman Sachs.

Hmmmn.

I called Mr. Rosenman who gave me the illuminating statement: "I am not offering any comment at this time."

Important? Who knows. Vicky thinks this makes ACA's claim that it didn't know that Paulson & Co. planned to bet against the securities in the Abacus CDO less plausible (because Rosenmann and Bermanzohn would have been whispering all the sweet nothings to each other).

As the market players, whether in corporate or individual form, are among the blessed, they can and are rebuilding their leverage and playing the game. It's like 2008 never happened, just a one in a thousand perfect wave, and the market participants have forgotten, just like they did in 1998 and 2003. As there is incredible liquidity available, those who can get their hands on it will use it. The authorities who saved the economy from destruction in 2008 are either busy patting themselves on the back or fighting for their own national interest. The Eurozone countries are blaming the `Anglo-Saxon' hedge funds and free market philosophy, while, in many cases, the US authorities are in the forefront of the `perfect storm' crowd - just a nip or a tuck here or there and everything will be fine. China has its own view of things and the other Asians are acting as though they were on a different planet - "what happens in Europe and North America stays there and has no impact on us." This serious reluctance to replace parochial issues with a genuine desire to restructure world finance assures us that the next crisis will be far worse than the one in 2008. Although it seemed that the world was terrified by that collapse, it is now clear that the authorities and the players were not so bothered that they changed their stripes. The cycles and very simple fundamentals are enough to predict that 2011 will be worse than 2008. The medium-term cycles tell us that there is a very high probability of a serious bout of risk aversion beginning in the next five trading days and continuing into the week of May 3. This is likely to be most apparent in Europe, but it should also impact the equity and commodity markets around the world. The stream of strong economic and corporate news, plus continued benign inflation outside of Asia should assure us of a further risk rally, starting in May and running through July and possibly into early August. This decline after the August peak should be far more serious and we believe it will be the start of a major market rout continuing into the middle of 2011, at a minimum. The deflationary recession that will accompany this market collapse, at least in the developed world, will put extreme pressure on the Eurozone and the EMU structure. The second half of this decade will witness a very different world.

The European Union finally agrees a bail-out, and the much-predicted rally of Greek bonds turns into a rout. A week later, spreads on Greek bonds had reached their highest levels since the outbreak of the crisis. The financial markets have recognised that, bail-out or no bail-out, Greece is in effect broke.

The bail-out prevents a default this year, but makes no difference whatsoever to the likelihood of a subsequent default. Just do the maths: Greece has a debt-to-gross domestic product ratio of 125 per cent. Greece needs to raise around 50bn ($68bn, £44bn) in finance for each of the next five years to roll over existing debt and pay interest. That adds up to approximately 250bn, or about 100 per cent of Greek annual GDP.

<...>

On my calculations, we have already gone beyond the point of no return, and should no longer focus on whether we can avoid default but on how best to manage it. Will it be an orderly process, or are we looking at default of the messy Argentinian kind? ...

Greece needs to raise around 50bn ($68bn, £44bn) in finance for each of the next five years to roll over existing debt and pay interest. That adds up to approximately 250bn, or about 100 per cent of Greek annual GDP.

Migeru:Apparently the accepted way to run the public finances is to continuously roll over debt. This is what Minsky called speculative finance (borrowing to pay principal, paying interest out of revenue).

But even if the Greek government were to present a credible long-term stability plan, the risk of default would remain high. This means that some form of debt restructuring is unavoidable. Restructuring is a form of default, except that it is by agreement. It could imply a haircut - an agreed reduction in the value of the outstanding cashflows for bond holders. The Brady bonds of the late 1980s, named after Nicholas Brady, a former US Treasury secretary, worked on a similar principle. An alternative to restructuring would be a debt rescheduling, whereby short and medium-term debt is converted into long-term debt. This would push the significant debt rollover costs to well beyond the adjustment period.

One way to force the debate would be to attach super-senior status to the EU loan to Greece. I understand this is still an unresolved issue. Super-senior means this loan would be repaid before existing debt. Should Greece ever get into a liquidity squeeze, bondholders would be put in a back seat. In such a situation, they might prefer rescheduling.

Migeru: Apparently the accepted way to run the public finances is to continuously roll over debt. This is what Minsky called speculative finance (borrowing to pay principal, paying interest out of revenue).

for hedge finance, income flows are expected to meet financial obligations in every period, including both the principal and the interest on loans.

for speculative finance, a firm must roll over debt because income flows are expected to only cover interest costs. None of the principal is paid off.

for Ponzi finance, expected income flows will not even cover interest cost, so the firm must borrow more or sell off assets simply to service its debt. The hope is that either the market value of assets or income will rise enough to pay off interest and principal.

Take Greece's 125% Debt-to-GDP. At 5% annual interest, that's under 7% of GDP in interest payments. That can be paid out of government revenue so we can assume Greece is not engaging in Ponzi finance. Not all of Greece's debt pays that interest since some of it was issued before 2007 when the yield the market demanded for its bonds was lower.

As for paying the principal, we get Munchau's 20% of GDP for debt service is we assume about 10% of Greece's bonds mature each year (13% GDP for principal plus 7% GDP for interest).

"Rolling your debt" means issuing a new batch of bonds to pay the principal on maturing bonds. That's speculative finance. It means Greece would issue maybe 15% of GDP each year in order to pay the bonds maturing that year.

Debt which cannot be paid will not be paid. You can call it default, you can call it restructuring, you can call it rescheduling. In the end what it means is creditors get a smaller cash flow out of the debtor, possibly for a longer time, possibly preserving the "net present value" of the cash flows.

Investors placed about 20bn ($28bn, £17bn) in orders for the five-year, fixed-rate bond, four times more than the government had reckoned on. However, in a sign that Greece is being made to pay for years of fiscal profligacy, the bond carried a record high interest rate spread relative to the rate for German bonds, the eurozone's benchmark.

Greece needs about 53bn to fund its debt requirements this year, a task that may prove harder than raising last year's sum of more than 60bn if, as some investors suspect, global financing conditions tighten in the course of 2010.

These figures are in each country's national budgets - they should be no secret though I am not sure where we could readily find the numbers...

... whatever happens the process is built on an important new principle that will define the euro zone: each nation is indeed its brothers' fiscal keeper.

No matter that troubled Ireland, Portugal and Spain are expected to contribute to the bail out, or that Angela Merkel has yet to explain to her disapproving electorate why every German should cough up 100 each to enable Greeks to retire earlier than any German can hope to. A long step has been taken to move the integration project forward.

No taxation without representation is another American notion that will now come into play. European citizens will now be in effect taxed to support the Greek government, which they did not elect and in which they are not represented. <...>

Olli Rehn, EU commissioner for economic and monetary affairs will begin using his long-dormant monitoring powers, supplementing IMF oversight, and allowing Mr. Sarkozy to claim Europe is following Voltaire's advice and cultivating its own garden. We are about to learn just how much additional sovereignty each euro-zone nation is willing to surrender as Europe takes another step--a giant step--down the road to more complete economic integration.

Of course, what's really at stake is not so much the taxes but the fact that if all basic services were provided by the private sector, plenty would be excluded and the rich would feel even more exclusive and special...

Jerome a Paris: They'd rather "freely" pay larger amounts to lawyers, private insurance companies, oil companies or mercenaries than to the government.

No. In this specific case, they simply would rather not pay extra taxes in order to save another country from the incompetence and/or corruption of its own government. Has nothing to do with lawyers, private insurance companies, oil companies or mercenaries.

That's ridiculous. Germany could extract 4% in seigniorage out of Greece. If the German government is unable to fund that without raising taxes...

Not to speak of the fact that they probably think they cannot do it without raising taxes partly because they wrote into the ECB regulations that the German government cannot borrow from the ECB. But of course, if Greece could borrow from the ECB we wouldn't be having this conversation.

The Bundesbank, headed by ultra-hawk Axel Weber, said the decision to bring in the IMF makes matters worse, arguing that the EU would impose tougher budgetary discipline.

The report mocked the IMF as the "Inflation Maximising Fund", saying the body had gone soft under Dominique Strauss-Kahn, a French socialist and Keynesian. It has shifted focus from fiscal cleansing to "growth-oriented" financial policies. "Currency reserves from the Bundesbank cannot plausibly be made available for such purposes," it said.

...Germany's 67 retirement age is unmatched in any other country. Germany is also the biggest net contributor to EU funds. In other words, Germans already work longer than other Europeans AND they contribute more to EU funds.

Greece raised its retirement age to 65 (although women, for some reason,--bizarrely--can retire earlier--don't ask me), and that number seems largely in keeping with other European countries, no?

Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations.

Prime Minister Gordon Brown called yesterday for the Financial Services Authority to start an inquiry, saying he was "shocked" at the "moral bankruptcy" indicated in the suit. Germany's financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.

... The European Union is also probing Goldman's role in arranging swaps for Greece that may have masked the country's budget deficit....Kim Soo Mi, a spokeswoman for South Korea's Financial Supervisory Service, said the regulator "is monitoring market developments overseas as well as in South Korea, and we plan to review the status of South Korean financial institutions' exposure to that CDO product of Goldman Sachs."

His comments came as it emerged that Goldman and the SEC had not discussed a settlement prior to the announcement of charges last week, and as documents emerged revealing the strained relationship between the bank and the regulator during the 20-month probe.

In a submission to the SEC in September 2009, Goldman said the regulator's case had "fatal deficiencies" and no basis "in law ... or common sense".

The SEC declined to comment.

Mr Brown, who is campaigning for re-election, demanded that the UK's Financial Services Authority launch its own investigation. "The banks are still an issue. They are a risk to the economy," he said....In February, the Financial Times revealed that the SEC last year sent subpoenas to banks including Bank of America, Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman, Morgan Stanley and UBS, seeking information about the marketing of CDOs.

Royal Bank of Scotland, the British bank 70 per cent owned by the state, paid $841m for assets affected by the Goldman allegations when it bought ABN Amro. The government does not exert direct managerial control at RBS but Mr Brown said: "The banks themselves will be considering legal action."

Berlin said it would consider legal steps following the US action. IKB, a German bank that was one of the first casualties of the global crisis in the summer of 2007, invested about $150m in the collateralised debt obligation product at the centre of the case. IKB was later bailed out....In Britain, the Liberal Democrats led calls for a standalone UK inquiry. "So many of the alleged victims will be British institutions and pension funds, the FSA must take it as seriously as the SEC," Lord Oakeshott, the Lib Dem Treasury spokesman, said. The Conservatives backed calls for the FSA to investigate, while accusing Mr Brown of being slow to act on bank regulation. "These are very serious allegations [against Goldman] that should be thoroughly investigated," Mark Hoban, shadow financial secretary, said....

Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position [cost of GS repurchase --leaving one to wonder how much ABN paid] in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC.

This report of RBS exposure [none] makes sense, since auditors at RBS will have recognized --after the ABN merger-- a lot of the CDO's toxic "collateral" originated by RBS's craptastic, transnational, subprime mortgage bonanza over the previous five years. While ABN wankers would have not.

The Securities and Exchange Commission's charges of fraud against Goldman Sachs could prompt a fresh wave of lawsuits by banks, insurance companies and investors that lost hundreds of billions of dollars on risky debts backed by subprime mortgages.

Numerous cases have already been filed related to losses on collateralised debt obligations - the debt instruments at the centre of the SEC's case against Goldman Sachs - as well as other investments related to risky US subprime mortgages.

The detailed allegations outlined by the SEC are likely to spur more lawsuits, and could also give existing cases a boost....However, shares in some sectors rose, such as those insurance companies that have come close to collapse because they insured losses on such CDOs.

Bond insurers Ambac and MBIA and insurer AIG were the biggest providers of such insurance, offered in the form of credit default swaps - derivatives that pay out on default - on the CDOs. AIG's exposure to such losses required the US government to bail out the insurer and both Ambac and MBIA have filed ­lawsuits relating to losses on mortgage-backed securities.

Has he failed? oh I don't know. It's only April, time still to declare taxpayer "profits" from penalties forthcoming of civil litigation and Restoration of toothsome taxpayer protections by passage of the finance reform bill. Those outcomes portend, to some, an midterm Democratic Party win-win by November.

Last October, I saw a cartoon by Mike Peters in which a teacher asks a student to create a sentence that uses the verb "sacks," as in looting and pillaging. The student replies, "Goldman Sachs."...For the fact is that much of the financial industry has become a racket -- a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors. And if we don't lower the boom on these practices, the racket will just go on.

According to these people, executives up to and including Lloyd C. Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit as the tremors in the housing market began to reverberate through the nation's economy. It was Goldman's top leadership, these people say, that finally ended the dispute on the mortgage desk by siding with those who, like Mr. Tourre and Mr. Egol, believed home prices would decline....By early 2007, Goldman's mortgage unit had become a hive of intense activity. By then, the business had captured the attention of senior management. In addition to Mr. Blankfein, Gary D. Cohn, Goldman's president, and David A. Viniar, the chief financial officer, visited the mortgage unit frequently, often for hours at a time....Goldman's top ranks changed its stance on housing in December 2006. In a meeting in a windowless conference room on the executive floor, Mr. Viniar, the chief financial officer, and Mr. Cohn, the president, gathered about 10 executives for a briefing. Mr. Sparks, the head of the mortgage unit, walked them through the numbers. The group was unanimous: Goldman had to reduce its exposure to the increasingly troubled mortgage market.

A few months later, in February 2007, senior executives began turning up on the trading floor. The message, one former employee said, was clear: management was watching. "They basically said, `What does this department do? Tell us everything about mortgages,' " this person said.

The executives told Mr. Sparks to tell his traders to sell Goldman's positive bets on housing. The traders' short positions -- that is, negative bets, mostly used to hedge other investments -- were placed in a central trading account.

Goldman Sachs Group Inc.'s stock may drop and the board could come under pressure to change managers after European politicians followed a U.S. fraud suit with their own plans to scrutinize the firm, investors said....The SEC case against Goldman Sachs was assigned to U.S. District Judge Barbara Jones in New York who presided over the case of former WorldCom Inc. CEO Bernard Ebbers. Ebbers, who was convicted in 2005 of overseeing one of the biggest frauds in U.S. history, is serving a 25-year prison term.

Bankers' bonuses and pay at the top end of the financial services industry have driven Britain's rising inequ ality over the past decade, new research from the London School of Economics shows.

City bankers have experienced near-unprecedented income growth over the past decade, with the highest-paid workers taking home nearly a third of the UK's total wage bill, according to the analysis from the Centre for Economic Performance at the LSE.

The study reveals that the self-styled "masters of the universe" were the big winners in the pay stakes under Labour, with the top 10 per cent of workers seeing their share of wages rise from 27 per cent to 30 per cent between 1998 and 2008.

Big bonuses paid to bankers and traders accounted for most of those gains, with financial services professionals taking home an extra £12bn per year by the end of the decade, according to the study.

A clear election victory by either Labour or the Conservatives is needed to sustain the appetite for gilts among the world's biggest investors, according to a Financial Times survey that highlights market concerns about the increasingly tight opinion polls.

Ten leading investment funds, with in total more than $7,000bn (£4,570bn) of assets under management, all told the FT that a hung Parliament, potentially delaying action to tackle the UK's £167bn deficit, was the biggest threat to the market.

Nine out of the 10 funds surveyed said they were equally happy to see a new Labour or Conservative government, provided it had a clear majority. This appears to contradict claims by George Osborne, the shadow chancellor, that the markets want a Tory victory and international investors "would rush for the exits" if Gordon Brown was re-elected.